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Framing, Expectations and Reference Points

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  • Oliver März

Abstract

Recent theories of expectation-based reference-dependent preferences offer a structured approach of the formation of reference points, yet do not incorporate important context-specific characteristics. One implicit assumption is that individuals form their reference point as expectations by correctly predicting the probabilistic environment they are facing. In an experimental setup, we demonstrate that a simple change in the framing of a decision problem alters the reference point formation by evoking a different moment of first focus. Apart from providing evidence on the limitations of current theories of expectation-based reference dependence, this paper further offers a theoretical extension that overcomes these limitations and allows reference points to be contingent on contextual effects.

Suggested Citation

  • Oliver März, 2016. "Framing, Expectations and Reference Points," Working Papers ECARES ECARES 2016-40, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:eca:wpaper:2013/240785
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    References listed on IDEAS

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    More about this item

    Keywords

    framing; expectations; stochastic reference points; salience effects;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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